TY  - JOUR
AU  - Erickson,Merle
AU  - Goolsbee,Austan
AU  - Maydew,Edward
TI  - How Prevalent is Tax Arbitrage? Evidence from the Market for Municipal Bonds
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9105
PY  - 2002
Y2  - August 2002
UR  - http://www.nber.org/papers/w9105
L1  - http://www.nber.org/papers/w9105.pdf
N1  - Author contact info:
Merle Erickson
Graduate School of Chicago
University of Chicago
1101 East 58th Street
Chicago, IL 60637
E-Mail: merle.erickson@ChicagoBooth.edu

Austan Goolsbee
Booth School of Business
University of Chicago
5807 S. Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-5869
Fax: 773/702-0458
E-Mail: goolsbee@chicagobooth.edu

Edward Maydew
Kenan-Flager Business School
University of North Carolina-Chapel Hill
Campus Box 3490, McColl Building
Chapel Hill, NC 27599-3490
E-Mail: edward_maydew@unc.edu
AB  - Although tax arbitrage is central to the literatures on tax capitalization, implicit taxes, and even capital structure, there is little empirical evidence of the extent to which firms actually engage in tax arbitrage.  This paper provides some evidence on the topic by focusing on a simple and observable corporate arbitrage strategy in the market for municipal bonds. It poses a puzzle for the literature, however, in that we find little evidence of municipal bond tax arbitrage by non-financial corporations.  The overwhelming majority of firms are not engaging in the arbitrage at all and even among those engaged in arbitrage, many firms do less than a safe-harbor amount allowed by the tax authorities.  Such a pattern is consistent with the presence of both fixed and marginal (i.e., that depend on size of the position) costs of arbitrage, though we cannot observe what those costs are.
ER  -